Starting with our last issue, we started this Q&A column on all matters pertaining to the purchase and sale of real estate in India, the extant laws that govern this, and numerous other related matters. Readers of NRI Achievers are invited to send in their queries, which will be answered by leading experts and entrepreneurs in the domain of real estate development.
What options does a NRI have for repaying a home loan ? -Anish Kapur, Canada
Home loan taken by a NRI from banks or housing finance companies may be serviced through various sources. Since the NRI is living and working outside India, it is always convenient for him/ her to pay the EMIs by way of remittances through regular banking channels. The loan may also be serviced out of funds lying in the NRI’s credit in any banking account like NRE account or FCNR deposits. The said loan may even be repaid out of funds in his/her NRO account. The RBI also permits rental incomes received from such property to be used for the purpose of servicing EMIs.
PoA, or Power of Attorney is a much abused instrument in India. What are the guidelines for NRIs ?- Satyendra Khorpode, Malaysia
A NRI can and should execute a PoA authorising a trusted person resident in India so that he/ she may complete needed formalities such as registration, possession, execution of agreement of sale etc., in case it is needed. A PoA may be made out to execute all contracts, deeds, mortgages, lease, sell and all matters relating to managing the property. However, at any given time, it is advisable to execute a specific power of attorney restricted only to a single action, such as only purchase or only for lease. Such power of attorney ought to be executed on stamp paper or as per the requirement of the country where the PoA is executed. One must then get the PoA attested by any authorized official of the Indian Embassy/Consulate/ Trade commissioner in that country. Many a time, when NRIs purchase properties, developers tend to demand a PoA in their favour. One may choose not to give this PoA, but it might lead to delays since all documents would have to be mailed to one’s foreign address. In such cases, it is best to execute a a specific PoA.
What implications does repatriation of property sale proceeds (or rental income) have for NRIs ? –Monika Ranay Deol, London, UK
A NRI who has purchased property through a home loan cannot repatriate the whole proceeds of the sale of such property, there are some caveats on this. Though there is no restriction to the number of properties a NRI may purchase or retain in India, he/she is permitted remittance out of India of sale proceeds of only two such properties as per the existing guidelines. Moreover, only that portion of the sale proceeds which was paid using Forex may be repatriated. This will include all money remitted in directly from abroad, as well as money utilized out of any FCNR or NRE account. However, in the case where funds used came from a NRE account, the amount to be remitted out would be restricted to equivalent foreign currency used on the date of payment. Said moneys will include down payments made as well as amounts remitted/used for servicing of the housing loan out of the above sources. It is pertinent to note that a NRI can sell the property so purchased anytime and there is no lock-in period for selling the property so acquired. Rental income being a current account transaction is repatriable subject to the appropriate deduction of tax and the certification thereof by a Chartered Accountant in practice.
How does an IRA make a real estate investment? Is it possible to buy a foreclosed property using IRA funds ?- Smriti Dhawan, Singapore
With the assistance of a custodian who specialises in custody and administration of real estate and other non-publically traded alternative assets. When an investor decides to truly self-direct his or her retirement investing, they are totally responsible for selecting the investment and performing the necessary due diligence. The custodian handles all the transactions as per the direction of the account owner and administers the assets. On the matter of foreclosed properties, it is advised that individual investors be aware of foreclosure purchase processes including payment schedules which are usually very limited. If planning to use IRA funds for such acquisitions, one should first identify an escrow agent to hold funds until the time of purchase. Engaging a knowledgeable real estate attorney would be worth the trouble in this particular scenario.